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Everyone Wants More

There is a lot of bloviating these days about the rich and taxes, income distribution, jealousy, greed, and class warfare. Most of it uses the 99/1% benchmark. The crux of the argument is that everyone wants more.

The rich want no boundaries on what they want and don’t want to give up what they have, which is reasonable since everyone else feels the same.

The poor have a hard time eating and putting a roof over their heads. They want more, need more, and have nothing to give up. No matter how Ryandian you are with the math, 0-0=0.

No One Knows Who is in the 99%

The middle class mostly wants to hold its own. Of course, they could use more, but they still want to give up less. And more than the other two groups, they are in a crossfire in which they increasingly give up more and get increasingly less. Ironically, even though they are shrinking faster than a Phoenix puddle in July, they hold up both ends.

Yet, the income distribution conundrum has little to do with taxes, greed, jealousy, or class warfare. In fact, it has little to do with the 99/1% benchmark. There are several reasons for that.

First, no one knows who is in the 99% and who is in the 1%. It depends on what you count, how you count it, where you can put it and – to a degree – when you count it.

Income is very different than wealth. Taxable income is much different than the tax you actually pay. At the upper end of the 99% and the lower end of the 1%, small shifts can cause you great vacillation between classes. For example, when a top-end 1 percenter gains or loses big money, the bottom end of the 1 percent start jockeying like Mitt’s NASCAR owners at the start of the Daytona 500. In turn, that ripples through the rest of us. Today a 1 percenter, tomorrow a 99 percenter.

Most upper-enders started with significant educational and economic advantages before they even made their own fortunes. The Horatio Alger story is as rare as 3% interest on savings accounts these days. Ann Romney’s ironing board as dining table story is bunk. Daddy George, who actually was a self-made millionaire, fronted Mitt and Ann the money for almost everything in the early days – including an ironing board, very nice dining room table, and Bain Capital. They haven’t looked back since.

On average, most are self-employed, some are even those “small business owners” (small is such a relative term) you hear so much about. They tend to work more hours, but be paid vastly more than your average burger flipper or machinist. You can judge for yourself whether the number of hours equates to the effort expended.

The main tax argument is a bit of a straw man. If you are wealthy, how much you pay in taxes is governed by how much you make, not your overall wealth. The more you make the more you can hide money offshore or get tax credits for Olympic horses or shutting down a companies. You may have a high tax rate, but chances are the amount you actually pay is a fraction of what your tax bracket suggests. Generally speaking, the more money you make, the bigger that gap gets. Lose more, make more. That’s not illegal, or in some cases, particularly immoral. It just is.

The government can rejigger taxes on the rich all it wants, but the revenue represents a microscopic fraction of what the country needs or the amount the rich can pay. Unlike most of the middle or lower class, permanent residents of the 1% don’t invest their money in living expenses anyway. Within a very short time, most of them will recoup what they lost many times over and become increasingly likely to pay even less tax. That’s why General Electric pays no taxes while Joe’s Pizza pays a lot.

People Become Richer Because They are, Well, Rich

No, people become richer (and move up the economic food chain) because they are, well, rich. Because the wealthy aren’t paying underwater mortgages or worrying about health care, they have a lot of disposable income.

A chunk may go for a summer home (or three), or if far into the wealthiest bands, yachts or private jets. But even those expenditures are usually a fraction of their disposable income. Except for those at the very top, everyone has enough expenses to have some sort of budget. A rich guy who buys too many Lambos or one too many beach houses will find himself broke just as surely as a budget breaking, middle class guy with a 10 year old car who can’t afford a trip to the beach – even if he lives in Daytona.

Where does all that disposable income go? Straight into investments. Investments that generate more money that is reinvested to generate more money and so on ad infinitum. That cash engine – which at a corporate level was a GE ex-CEO Jack Welch concept – widens the income disparity by leaps and bounds. The rich don’t just get richer; they get monumentally richer…very fast. Along the way, not all that money necessarily creates jobs. It creates people rich enough to control companies. And, their primary interest is making more money, not keeping a plant open.

Many companies currently sit on huge wads of cash. They don’t create jobs because the people who largely own them lose money – at least initially – if they spend the money.

So as you listen to all the cacophony about jobs and taxes and class war, remember that none of those things mean very much – be you Democan or Republicrat. There are few jobs because there is no economic incentive to create them, even in the much vaunted, unfettered, “free market”. Because of the vagaries of our tax system, raising taxes actually turns a profit sometimes. And finally, the rich aren’t doing anything special or illegal; they just want what everyone else wants…